This graph illustrates a firm's marginal factor cost of labor $\left(M F C_{L}\right)$, marginal revenue product of labor $\left(M R P_{L}\right)$, and the supply of labor $\left(S_{L}\right)$. This firm hires labor in a monopsony labor market.

What wage and quantity combination will this firm choose to maximize profits?

Choose 1 answer:
(A) 400 workers, $\$ 35$ per day
(B) 600 workers, $\$ 35$ per day
(C) 600 workers, $\$ 70$ per day
(D) 400 workers, $\$ 55$ per day
(E) 400 workers, $\$ 25$ per day
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A monopsonistic market for labor
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Question

This graph illustrates a firm's marginal factor cost of labor $\left(M F C_{L}\right)$, marginal revenue product of labor $\left(M R P_{L}\right)$, and the supply of labor $\left(S_{L}\right)$. This firm hires labor in a monopsony labor market.

What wage and quantity combination will this firm choose to maximize profits?

Choose 1 answer:
(A) 400 workers, $\$ 35$ per day
(B) 600 workers, $\$ 35$ per day
(C) 600 workers, $\$ 70$ per day
(D) 400 workers, $\$ 55$ per day
(E) 400 workers, $\$ 25$ per day
Related content
A monopsonistic market for labor
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Accepted Answer

∻Solution∻ ‖ a ⋮ Profit Maximization in Monopsony: A monopsonist maximizes profits by equating the Marginal Factor Cost of Labor (MFCL) with the Marginal Revenue Product of Labor (MRPL). ‖ ‖ b ⋮ Determining the Wage and Quantity: The firm will choose the wage and quantity combination where the MFCL curve intersects the MRPL curve. According to the graph, this occurs at 400 workers and $35 per day. ‖ ∻Answer∻ ⚹ (A) 400 workers, $35 per day ⚹ ∻Key Concept∻ ⚹ Monopsony Profit Maximization ⚹ ∻Explanation∻ ⚹ In a monopsony, the profit-maximizing quantity and wage are determined where the Marginal Factor Cost of Labor equals the Marginal Revenue Product of◊What impact does the level of competition in the labor market have on a firm's ability to maximize profits in a monopsony⍭ Generate me a similar question◊⚹

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